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Banking

Minnesota's banks face two legislative priorities in the 1998 session: avoiding a ban on automatic teller surcharges and engineering a change in the way small, closely held banks are taxed.

One is of their own choosing; one isn't.

First, the one banks want to address in 1998: the tax change. Under federal law, small, closely held banks are allowed to become Subchapter S corporations under the federal tax code. The earnings of a Subchapter S corporation are not subject to federal corporate income tax, but investors are taxed on their profits as personal income. Until 1996, banks could not be S corporations and thus were taxed on both earnings and dividends.

The Minnesota Legislature, however, balked at bringing state law into compliance with the new federal law in 1997.

The state's two banking industry groups, the Eagan-based Independent Community Bankers of Minnesota and the Minneapolis-based Minnesota Bankers Association, consider hammering out a compromise their top priority this session.

"The two trade associations have been working closely together on this issue since last session," said Allen Olson, president and CEO of the Independent Community Bankers, which primarily represents smaller institutions in rural Minnesota.

"We've spent a lot of time in the interim between legislative sessions reviewing this with legislators," Olson said. "I believe they now understand that it is not a banking issue."

Joan Archer, vice president of government relations for the MBA, said the organization has two Subchapter S goals. One is to eliminate double taxation on banks that already converted to Subchapter S status. The other is to convince legislators to pass legislation that brings state law at least partly into conformity with federal law.

To that end, the banking organizations have worked on fiscal notes with state bureaucrats and on an understanding of the intent of the legislation with lawmakers.

The bankers also have stressed that, at least to them, Subchapter S legislation is about small business, not banking. With encouragement from the two banking organizations, smaller banks that are eligible for Subchapter S status also have pushed for the change. The move is designed to reinforce to lawmakers that the change is not about the banking industry, but about small business.

"We encouraged that because we felt that these banks were suffering some negative reaction and it was unjustified," Olson said. "They needed to be able to express their views separately from [MBA executive vice president] Wes Ehrecke and me."

Minnesota banks also have a potential fight on their hands over ATM surcharges.

Probable gubernatorial candidate Hubert Humphrey III, House Speaker Phil Carruthers, House Majority Leader Ted Winter, Sen. John Hottinger and other legislators are planning an attempt to bar the charges, which generally range from $1 to $2 for people who use an ATM owned by a bank other than their own. The Minnesota Public Interest Research Group (MPIRG) and the Minnesota Credit Union Network also are involved in the effort.

"For large banks, ATMs are the cash cows of the 1990s and consumers are the sacrificial lambs," Humphrey said. "These surcharges simply aren't fair, and it's time to stop banks from picking the pockets of consumers every time they use an ATM."

But the Minnesota Bankers Association considers the fees fair and points out that consumers want ATMs. Without the fees, according to the MBA, the number of ATMs would decline, harming consumer convenience.

"This is not an issue in which state government should be involved," Ehrecke said. "It's clearly a customer choice issue."

Banks typically do not charge their own customers surcharges but slap them on non-customers who use their cash machines. Since banks and other ATM owners started charging fees, however, the number of machines has mushroomed around the state. Banks contend the fees are necessary to turn the machines from a customer convenience that costs them money to a profit center.

Proponents of a ban on the fees point out that ATM owners already charge interchange fees of 30 cents to 50 cents per transaction to a customer's bank. They contend that surcharges amount to double dipping.

"It's a very complex issue," Archer said. "I'm sure there will be time for both sides to give their parts of the story."

--Tim Huber

Bonding bill

You thought Christmas was over? Sure, the gift-giving holiday has come and gone, but the political Christmas is just beginning: the 1998 State Bonding Bill.

But playing the role of Santa Claus this year will be a surprise. Gov. Arne Carlson, better known for vetoing spending proposals, is proposing the biggest bonding bill in history, a sack of goodies so big that even those in his own party are questioning its size. "The bottom line: It's too large," said House Minority Leader Steve Sviggum, R-Kenyon.

But while the size debate will frame the bonding bill, political battles will shape it. "This will probably be the most political session in the 23 years I've been here," said Sen. Randy Kelly, DFL-St. Paul.

The governor's bonding proposal calls for issuing $700 million in general obligation bonds, and $172 million in spending from the state's general fund surplus; the supplemental budget calls for $373 million in new spending, including $177 million identified in the bonding bill. Spending proposals vary from $500,000 on deformed frog research to $252 million for the University of Minnesota and $65 million for a new hockey arena in St. Paul. The other chunk of the surplus money, $841 million, is targeted toward tax cuts.

Though the bonding bill tends to grow larger after legislators get their hands on it, the governor has said he doesn't want to exceed the $1.2 billion mark.

"It surprises me that coming from his administration, and as fiscally conservative as he is, it seems awfully high," said Sen. Martha Robertson, R-Minnetonka.

But not out of line with self-imposed spending limits, said Jackie Renner, the governor's spokeswoman. "Even though the raw numbers look intimidating to some other legislators, it falls within the guidelines." The state limits annual debt service payments to 3 percent of projected revenues; this proposal meets that criterion, Renner said, and even though the raw numbers are historically high, previous bonding bills have exceeded the 3 percent guideline.

But size isn't the only question. Other legislators question the use of debt for funding projects, even as the state sits on a large cash surplus. "Isn't it possible that some of the long-term capital needs of the state should be paid in cash instead of borrowing money?" asks Sen. John Marty, DFL-Roseville.

Renner, however, said spending the surplus money cuts into tax reductions. "You've got to figure that what you're trading is tax relief."

Aside from these questions, the political gymnastics should prove just as interesting.

This is Carlson's last bonding bill, and some legislators suggest he is trying to create a legacy for his administration.

While political enemies in the DFL camp would seem most likely to accept this line of thinking, Sviggum said it makes sense. "Arne might be thinking, `I've held the line, I've been somewhat hard on spending, maybe it's time to loosen the purse strings.' "

But Carlson's office said that the bill meets legitimate needs that weren't met in more cash-poor times.

Gubernatorial politics will also affect the St. Paul hockey stadium request, but for a different reason: St. Paul Mayor Norm Coleman is frequently mentioned as a possible successor to Carlson, and his recent conversion to the Republican Party might make a hockey request denial a suitable punishment by DLFers.

"I think people will see through that very quickly," said Sen. Randy Kelly. "It will not sit well in St. Paul or statewide. It has a potential for causing Coleman to look moderate, and actually strengthen him."

But the hockey bill is not a sure thing, even though Carlson's request for funding for convention center projects in Minneapolis and Greater Minnesota should help gain support from legislators statewide. "If the governor's proposal and recommendations are followed, I think there would be a combined interest on the part of St. Paul, Minneapolis, St. Cloud, Duluth, Rochester and Fergus Falls to come together and support this as one package," said Kelly. All those cities will have convention centers funded under Carlson's proposal.

However, the debate over public subsidies for sport franchises will likely flavor the St. Paul convention center proposal.

"If they are linked, then one would have the fear that it wouldn't pass. We continue to say it's such a different situation," said Rep. Alice Hausman, DFL-St. Paul. She argues that the civic center is in dire need of repairs, and that the facility is multi-purpose; the fact that an NHL team will play there, she said, is a "side benefit."

Whether that argument plays in the Legislature is unknown. "I don't mind renovations to help with public functions," said Marty, "but I oppose sports stadium subsidies. They say this is different from the Twins Stadium. Yeah, right, we really need luxury boxes for high school hockey."

Across the river, the Minneapolis Convention Center expansion appears to have widespread support among legislators, and its inclusion in the governor's bonding bill makes its passage seem likely.

On the eve of the legislative session, Greg Ortale, the head of the Greater Minneapolis Convention Center and Visitor's Bureau, said he's "cautiously optimistic."

--Tim Johnson

Health Care

Figuring out how to protect consumers is one of the biggest health care challenges the Legislature is likely to tackle in 1998.

Consumer and business representatives were meeting before the session started to create a plan to set up a state organization to help health-care consumers with advocacy and information. The state ombudsman idea was floated and sunk last session because of differing ideas about how to make it happen. There is more agreement this year, observers said, but some contentious issues remain.

"I believe we have very good momentum from last session," said Susan Stout, a nurse and lobbyist for the St. Paul-based Minnesota Nurses Association. "The legislators I've talked to have been very supportive; I'm not getting, `Oh, we shouldn't do that.' I'm getting very good responses."

The ombudsman idea could create more informed consumers, which in turn could make the health-care market work better, said Bill Blazer, senior vice president at the Minnesota Chamber of Commerce.

"But we have to watch how we fund it," Blazer said of the estimated $800,000 price tag for the new effort. "Our No. 1 priority is to avoid anything that adds any expense."

The state's administration had offered the idea of funding the office with fees on HMOs. Blazer is against that idea because the plans would raise the prices businesses pay to cover the fees. And HMOs don't welcome any more legislative moves that add to their costs. Others aren't bothered by the idea: Stout said it would break down to only about a quarter per member per month.

Another funding option would combine general fund and HMO fee support. Or the money could be found by making cuts in the health and commerce departments -- a move those departments are likely to oppose.

Another question facing the consumer advocate plan is just how far the new office will be able to go in advocating for consumers. Take the task of assisting consumers in understanding and asserting their contractual and legal rights: Stout said the health plans have been reluctant to endorse a bill that will give advocates the right to help enrollees interpret their contracts.

Any lingering disagreements among health plans and consumer groups over the role and funding of the advocacy office will likely surface during the session.

Fending off any forays by for-profit hospital operations into Minnesota is another issue that was discussed last session that is likely to surface again. Minneapolis Rep. Lee Greenfield, DFL-Minneapolis, introduced a bill addressing this issue later on in the last session, Stout said. He's more prepared this year. "I think it is going to be a big pursuit: he's really going to work on it," she said.

The goal is to keep for-profit chains from buying hospitals in Minnesota, where virtually all hospitals are nonprofit. Rep. Greenfield's bill would give the attorney general's office the ability to review a buyout proposal and require that any value that accrued as a nonprofit, from not being taxed, would be tallied and transferred to the community.

"What it will do is make it more difficult for a for-profit hospital to come in and accumulate those assets and take them," Stout said.

The time to discuss policy will be short during the session, with just a few weeks available to debate and develop bills, said Mark Skubic, vice president for public policy and government relations at HealthSystem Minnesota. So most health-care issues that will come up will be leftovers from last session, such as the consumer advocacy office and protection for nonprofit hospitals.

Another continuing topic is changing how health care is taxed. Health-plan companies and HMOs saw their tax frozen for two years last session, Blazer said. He'd like to see that freeze broadened to include indemnity plans and then extended for everyone.

"We've gone two-thirds of the way, the Blues and the HMOs are on a holiday, let's get the indemnities on par and let's see if we can make the holiday permanent," Blazer said. "I don't know how far we'll get but we're going to take a pretty good run at it."

There is a health-care-related provision to the governor's proposed bonding bill. He included a request for $70 million for a new Molecular and Cellular Biology Building at the University of Minnesota.

Another way legislators will use the 1998 session is to hold some hearings on how the health-care market should change, Skubic said. Those kinds of discussions could then influence legislative efforts in 1999.

Trying to figure out how to encourage meaningful changes in health care is a worthwhile challenge, Blazer said, since new ideas to date have often ended up seeming little different from what already exists.

"It's like there's a machine that homogenizes every idea," he said.

--John Manning

Labor

Construction wages on public projects are back on the agenda at the Legislature this session.

Minnesota already has an established prevailing-wage law which requires companies that work on publicly funded projects to pay the wage that is most commonly paid for the task. Because of the strength of unions, prevailing wages tend to mean union-scale wages.

The prevailing-wage law was patterned after the federal Bacon-Davis act of the 1930s. But until last year, a gray area in Minnesota's law gave school districts the right to choose whether to hire contractors that pay prevailing wages.

Last year, the Legislature closed the loophole by passing a prevailing-wage requirement for schools as an amendment in the massive tax bill that was eventually signed by the governor in June.

Although the law passed with little debate, its impact was felt in a booming segment of the commercial construction market. In 1996, Minnesota schools spent about $700 million on new construction.

The new law generated controversy among private contractors, who argued the bill would result in wage hikes on school construction projects, force the cost of school construction projects up from 4 percent to 14 percent and put rural non-union contractors at a competitive disadvantage in their own communities.

However, prevailing wage still has broad-based support among legislators. Supporters, including trade unions, believe the system ensures higher wages and that unions will not be undercut by private contractors that are able to use a greater number of trainees on each project who are paid lower wages.

"We will be very interested in following any new legislation about prevailing-wage issues," said Bill Peterson, secretary treasurer, AFL-CIO. "It has worked well here in Minnesota. It has leveled the playing field so employers know what the hourly rate is going to be."

This session, Rep. Hilda Betterman, R-Brandon, introduced a new prevailing wage bill proposing to overhaul the entire rate requirements on all public projects.

"My bill would eliminate prevailing wage in Minnesota altogether but if a school district or any other district wants to put out bids for prevailing wage nothing would prevent it," said Betterman.

Although Betterman has been pushing for prevailing-wage law repeal for years, she would also support a fallback position to changing the system of how prevailing wages are calculated. She proposed tallying wages by a median wage rather than modal methods, and requiring private contractors to more stringently report wages. But Peterson said prevailing wages are ultimately good for the economy and that the modal system of calculation had worked in many states.

Democratic legislators connected to the issue did not return phone calls for comment on the issue.

Rep. Steve Sviggum, R-Kenyon, is also a strong supporter of overturning the school construction amendment and said his push for repealing the law that failed in last summer's special session was just the beginning.

"There are consequences for rural contractors who are not going to be able to compete with the big businesses from the Twin Cities that come out and take those jobs," said Sviggum. The Associated Builders and Contractors of Minnesota has also complained that the school construction amendment passed without enough public input.

Supporters, however, feel the law is an overdue extension of Minnesota's existing prevailing-wage law.

--Jennifer Ehrlich

Media

This year companies in television and radio need to start equipping their stations for entry into the digital age; alter if not erect towers to accommodate antennas for their new signals, analog and, now, digital; and prove to legislators and citizens that they intend to use the digital television (DTV) technology in accordance with the public's -- and their shareholders' -- interests.

None are small matters, say officials charged with carrying out the plans.

"The value of the TV station right now is the value of the upgrade," said Skip Erickson, director of engineering for CBS-affiliate WCCO-TV (Channel 4), Minneapolis. "If a station chooses not to get into high-definition, at the end of the conversion period -- which may stretch five to 15 years -- they'll have to go off the air and, ultimately, the value of their business will cease to be there. You're SOL."

All the while broadcasting and advertising communities must dodge and debate a chorus of opponents -- elected, special interest and civilian -- who are now condemning what's known as "vice advertising," legal yet increasingly controversial promotions for the casino, liquor and tobacco industries. Broadcasting sources suspect that these issues will likely resurface this year, and they oppose any Congressional restrictions that could arise.

"Yeah, there's a lot going down," quipped Jim duBois, president of the Minnesota Broadcasters Association (MBA), based in St. Louis Park.

On the federal level, Twin Cities TV stations will have their ears tuned to the Advisory Committee on Public Interest Obligations of Digital Television Broadcasters -- a.k.a. the Gore Commission, a panel put together to make recommendations on the public's behalf in return for the digital transmission signals granted to broadcasters. Free time to political candidates and educational programming for kids leads the list of proposed programming provisions.

The commission, which plans to make recommendations by the end of 1998, will likely help shape federal broadcasting policy. The TV industry, meanwhile, will want to make sure the requests don't impede too much with their pursuit of profits.

(An aside: Harold Crump, vice president of corporate affairs for Hubbard Broadcasting Inc., St. Paul, is a member of the 23-person group, led by Vice President Al Gore.)

"We'll be watching the Gore Commission with great interest, to say the least," duBois said.

Another federal matter for the broadcasting industry centers on finding ways to circumvent zoning restrictions so they may build new towers to accommodate the DTV transmitters. With digital technology, every station will have to transmit two signals until they return their analog channels in, potentially, 2006. But many towers are overbuilt, often already handling multiple TV antennas and radio signals, which makes housing a second DTV signal per station difficult if not impossible.

A deadline of May 1999 -- for the nation's top four networks in the top 10 markets -- for delivering DTV has given broadcasters a sense of urgency on the tower-building front. Problem is, communities across the country have set up strict ordinances against the metal monsters, which puts the TV industry -- like those dealing in cellular phones and PCS -- in a bind.

The MBA and other organizations representing the industry have asked the Federal Communications Commission to preempt local zoning restrictions.

"We don't have a lot of time to play with in terms of getting the towers up," duBois said. "We recognize there's going to be a battle from the communities. But there has to be some flexibility."

In the same vein, broadcasters are also thinking about how they're going to pay for not only the towers, but the new DTV equipment used to produce and air the programming. Estimates for digital video production equipment vary widely, with a price tag of $2 million per station -- and more -- oft cited.

This session, Minnesota broadcasters will seek legislative approval for a one-time exemption of the state sales tax associated with buying digital broadcasting equipment.

DuBois calls the initiative "our major legislative objective in the 1998 legislative session," commanding the support of the TV and radio industries, which will face the thrill and burden of digital transmission before long.

--Diane Richard

Stadium

The Twins stadium issue is hanging on like a tired pitcher who can't hit the zone to save his life -- yet refuses to leave the game.

State legislators will serve as the umpire in the 1998 session, and determine whether this player has one last strike to throw. Although attempts to pass legislation to finance a new Twins baseball stadium failed last session and in the November special session, legislators are gearing up to tackle the issue again.

Legislators are expecting to see two to three new stadium finance proposals appear before them this session. Sen. Roy Terwilliger, R-Edina, has announced his intent to introduce a new Twins stadium financing package. The proposal is expected to focus on private financing and would limit the stadium's cost to $250 million.

Considering the wide array of proposals on the table last year, it won't be easy to come up with new solutions. Past suggestions ranged from tapping Native American casinos revenues to putting slot machines in at Shakopee's Canterbury Park. Other proposals included taxes on liquor, cigarettes and financial investments. The financing package that actually made it to a formal vote featured user fees, parking and ticket taxes, and also had Twins owner Carl Pohlad donating the team to a private foundation. The bill was defeated by the House by a vote of 84–47 in the special session.

That track record and continued public opposition has resulted in little optimism at the Capitol that any new measures will gain enough support to pass this session. "I do think the odds are against them this year," says Sen. John Marty, DFL-Roseville. However, it is too soon to tell. If the momentum shifts it is a decision that could go either way, Marty says. A proposal that relies largely on private financing would have the best chance to pass. In addition, if a private group comes forward with its own financing plan, it would make legislative approval a moot point, he adds.

"I think in all honesty, the odds are against us being successful," agreed Rep. Loren Jennings, DFL-Harris. The biggest obstacle is overcoming strong public opposition. "I think there has to be something major to come forward to shift the weight," Jennings said.

Another obstacle is the team's pending sale to North Carolina businessman Don Beaver. Beaver plans to move the team to North Carolina's Triad area of Greensboro, Winston-Salem and High Point. "Obviously we have people who believe that the Twins aren't going anywhere -- no matter what -- but the Twins clearly can and will move," Jennings said.

The failure to pass legislation in the special session only pushed owners closer to selling the team. "Prior to Nov. 30, legislators and citizens of Minnesota had the ability to control the future of professional baseball in Minnesota. Now even if we are successful in passing a bill, it's no longer in our control. It's up to the owners," Jennings said.

"Carl Pohlad's No. 1 objective is to keep the team in Minnesota," said Dave St. Peter, a spokesperson for the Minnesota Twins. However, Twins owners also are doubtful that a solution will materialize in the 1998 legislative session. "We don't hold out much confidence for the ability of successful legislation to pass. I think if there's anything last session taught us it's that even bills containing limited public money faced an uphill battle," St. Peter said. Nevertheless, if a solution does emerge, and a bill calls for involvement from Pohlad, it will be looked at and considered, he added.

Discussion of a potential Twins sale was on the agenda when members of baseball's Executive Council and Ownership Committee met Jan. 14. Baseball owners and acting baseball commissioner Bud Selig appear to be in favor of finding a solution that keeps the team in Minnesota.

"I absolutely, truly believe that the owners of the Twins want baseball to stay in Minnesota," Jennings said. "To me the philosophical question you have to ask is if we continue to say no, then how far do we continue to say no to other entertainment things in Minnesota?" he said. How is using public money to bring hockey back to St. Paul, or support the Ordway or the Minnesota Zoo any different? he asked.

--Beth Mattson

Utilities

In the world of telecommunications and utilities, some of the actions taken by the Legislature will seek to advance earlier actions, while others may prepare for future ones. One will try to bring Minnesota into compliance with federal rules, and one will try to change a rule that municipal utilities now operate under.

But what is probably the hottest legislative issue -- electric utility deregulation -- will almost certainly not be heard in the coming session. The vast complexity of the issue and the positions pro and con which are developing, compounded by the short legislative session, will probably prohibit a full hearing.

"There's a basic consensus" that deregulation won't be heard in 1998, said Sen. Steve Kelley, DFL-Hopkins, vice chair of the state Jobs, Energy and Communications Development committee, and chair of the subcommittee on Telecommunications and Technology. "If there is a bill, I expect it would deal with a planning process, something that helps us set the stage." However, Kelley said that he was not aware of any such bills or proposals in the works.

One facet of deregulation which Minnesota's investor-owned utilities have said they hope to see resolved is the personal property tax issue, which assesses a special tax on the equipment used to generate electricity in Minnesota. While it is an issue worth watching for in the coming session, there is no assurance that a bill will emerge.

Telecommunications will see a few bills of interest in the Legislature this year. One of these relates to a right-of-way action which was taken last year.

"It concerns the use of right-of-way, city streets mainly, by utilities and telecom companies," said Burl Harr, executive secretary of the Minnesota Public Utilities Commission. "With the growing competition, there is this desire to put in lines. There has been a constant tearing-up of the right-of-way. Some communities saw this as a possible revenue stream. It's quite a controversial issue. A bill was passed that sets a course for resolving this."

As a result, the various utility companies formed an advisory group which negotiated with the communities. "They reached compromise on a lot of issues, but some issues are unresolved," said Harr. "The original bill set a very, very aggressive timetable for adopting the rules." The initiative in this session aims to move back that schedule, and Harr said he has heard that a bill may be floated this session to deal with some of the unresolved concerns.

A second telecom bill seeks to put Minnesota in compliance with a federal mandate regarding subsidizing the telecom needs of certain individuals. In the past, federal and state money went into a fund, and the subsidy was awarded to individuals based on income, age and disability, Kelley said. However, the Federal Communications Commission decided in 1997 that it would no longer provide matching funds to states whose programs used any criteria except income. This bill may change Minnesota's criteria for awarding the subsidy.

A third telecommunications bill is one on which Kelley has been working with other legislators regarding the efforts of municipal utilities to form local telephone exchanges. "The purpose of that is to reduce the barriers for municipal utilities that make it harder" for them to get into the local telephone business. While municipalities are free to get into non-essential types of services, such as Internet or data transmission, they have needed a vote of support from 65 percent of their customers to form local exchanges. "This bill tries to create a level playing field," said Kelley.

This could be especially significant when it comes to bringing competition to rural areas, where many of the large competitive local exchange companies have thus far not brought any service. If telecom users in rural areas are to experience telecom competition, Kelley has suggested that electric utilities may be the logical players to enter the business, given their knowledge of the customers in their areas, their experience with infrastructure, and the communications networks they already have in place for internal use.

Technology-related issues are in short supply this session; in fact, Kelley said he could name only one on the subject, a "not-too-dramatic bill that would make an amendment to the Electronic Signature bill," which regards whether electronic signatures on electronic documents are legally binding.

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